Can you actually earn points on a balance transfer?

27 July 2018

Explore your options when you want to earn rewards and pay off existing debt on a new credit card.

Although there is a wide range of reward credit cards that offer you points per $1 spent, none of them give you points for a balance transfer. This is because balance transfer transactions are different from the regular purchase transactions that earn you rewards.

With purchases, you make a payment for items or services using your card. But with balance transfers, your new provider essentially pays out your existing debt so that it can be moved to the new card. Most issuers classify this type of transaction as a cash advance and exempt it from earning points because it is not a regular purchase. But if you want both rewards and a 0% balance transfer offer, you can use this guide to weigh up your options.

Would it be worth earning points on a balance transfer?

The short answer is not really. Even if you could earn 1 point per $1 on a balance transfer, you’d have to transfer a debt of $10,000 or more just to redeem your points for a $100 gift card. You’d also have to factor in the following costs and risks:

Annual fee. Reward credit cards typically have annual fees ranging from $90 to $450 or more. So in most cases, this cost would cancel out the value of the points straight away.

Balance transfer fee. Depending on the card, you could pay a one-time processing fee worth 1–3% of the debt. That would be an extra $100–$300 on a $10,000 balance transfer, meaning you’d likely pay more than you’d earn from reward points.

Balance transfer interest charges. Even if the card you got had a 0% interest rate for 12 months, if you transferred a debt big enough to get value from the points then it’s also likely you wouldn’t be able to pay it off during the introductory period. Any debt remaining after that time would be charged interest at the standard rate for your card, which is usually between 19% and 22% p.a.

Basically, if you have existing credit card debt to pay off, you’re usually better off getting a 0% balance transfer credit card and focusing on clearing your balance without worrying about points. That allows you to save as much money on interest as possible.

Once you’ve paid off your debt, you could consider getting a card that earns points for your everyday spending. Just remember that these cards offer the most value when you pay your balance in full each month.

What about credit cards that offer 0% on balance transfers and introductory bonus points?

Some credit cards offer new customers both introductory 0% balance transfers and bonus points. But to get the bonus points, you usually need to spend a specific amount on new purchases when you first get the card. For example, a card might offer 50,000 bonus points if you make $3,000 worth of eligible purchases in the first 3 months.

If you’ve already balance transferred a debt to the card, meeting this spending requirement will add to your balance. Plus, new purchases will be charged interest at the purchase rate for that card, which could be as high as 22% p.a., and any repayments you make toward the card will be applied to your purchase debt before the balance transfer.

How to decide if it’s worth getting a credit card with 0% on balance transfers and bonus points

If you really want to get points and a balance transfer, these are the key factors you’ll need to consider:

What can you get with the bonus points? Check out the rewards or frequent flyer program to work out the value of the bonus points. Sometimes these offers can be worth hundreds of dollars, although it does depend on how you use them.

What are the bonus point spending requirements? Look at how much you need to spend and how long you have to meet this requirement. Is it reasonable considering your existing balance?

Can you pay off your debt during the balance transfer promotional period? Consider how long you’ll get the promotional balance transfer rate based on the size of your debt. For example, if a card offered 0% interest for 6 months and you had a debt of $6,000, you’d have to make repayments of $1,000 per month to avoid interest charges on this debt.

Can you afford to pay off both your balance transfer and the debt from any spending you do to get bonus points? When you use a credit card for both a balance transfer and new purchases, it’s likely you’ll have different interest rates for each part of the balance. When this happens, any payments you make will automatically go towards paying off the debt with the highest interest rate (usually your new purchases). So if you can’t afford to pay off all your debt during the introductory period, you could end up paying even more later on. Plus, you won't be able to take advantage of any interest-free days on these purchases while you carry a balance transfer.

When could it be worth getting a 0% balance transfer card with bonus points?

Here are some scenarios when getting a credit card that has both a 0% on balance transfers and bonus points could be worth it:

If you know you can pay off the debt (including bonus point spending) during the 0% period

If you want to cancel your current account and only have a small amount owing

If you don’t need to make use of the 0% balance transfer offer

If you decide the 0% offer and card work for you, even if you can’t meet the bonus point spending requirements and choose to forego them

Remember that with cards offering two different introductory promotions, your focus should be on the deal that gives you the greatest value based on your current circumstances. If you have existing debt, that might mean using the 0% balance transfer offer and not worrying about bonus points.

If you don’t have credit card debt, on the other hand, you can focus on the bonus point offer without worrying about any 0% balance transfer rate. In fact, you may even want to look for a card that offers bonus points and 0% interest on purchases instead.

While balance transfers and reward points both have the potential to give you more value from the card you choose, these features are usually designed to suit different needs. If your goal is to pay off existing debt, focusing on a 0% balance transfer card could help you save money in the process. If your goal is to earn points, getting a new card that offers bonus points will help you get rewards faster. But either way, remember to consider your budget and compare a range of cards so that you can find one that works for you.

Amy is a senior writer at finder.com.au with more than 10 years experience covering credit cards, personal finance and various lifestyle topics. When she’s not sharing her knowledge on money matters, Amy spends her time as an actress.

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